Grosser than we thought..

June 9, 2006

Back in March, when Capital One Financial Corp. (COF) announced that it was acquiring North Fork Bancorp (NFB) in a $14.6 billion deal, there was a lot of criticism about the hefty payouts and substantial tax gross-ups going to North Fork’s top three executives. In her column that ran on March 15 in the NY Times, Gretchen Morgenson (story behind wall) poked at Northfork CEO John Kanas for a deal that would pay Kanas about $91 million, not including a $44 million tax gross-up. Over at the WSJ (also behind a wall), Kanas’ deal was valued at "roughly $185 million", which included a gross-up that "could be as much as $111 million". At the time, Kanas told Morgenson that he planned to make "a major donation" to reduce the tax bill. He told the WSJ on March 14, "I know how the story looks, and it’s an egregious amount of money."

Well, it turns out that Kanas’ tax gross-up is grosser than we all thought. According to this amended S-4 filed by Capital One yesterday, Kanas’ tax bill will actually be closer to $122 million. (Hint: do a search for excise tax gross-ups to find it quickly). The tax bills for North Fork’s two other executives’ are significant in their own-right according to the filing: $40 million for Vice Chairman John Bohlsen and $26 million for CFO Daniel Healy.

So between the tax gross-ups and the various other goodies that Kanas is set to receive, his personal piece of the pie works out to around $212 million (based on the numbers provided in the amended filing), which is significantly more than the roughly $185 million James Kilts’ package was worth when he sold Gillette to Proctor & Gamble (PG) in 2005. At the time, that deal was considered the high-water mark when it came to merger piggyness. But now, top executives who really want to prove their worth have a whole new benchmark to shoot for. Do we hear $250 million, anyone?